Equity markets, both in the U.S. and globally, are perceived as overpriced, and with growing geopolitical tensions, investors are advised to shift focus to gold, says JPMorgan’s Lead Market Strategist, Marko Kolanovic.
In JPMorgan’s recent Global Markets Strategy analysis, Kolanovic observes that even though markets have recovered somewhat from their lows in early October, the mid-term forecast is still pessimistic, with challenges on the rise and supportive factors diminishing.
He mentioned, “The current equity market valuations are at risk due to elevated real rates and capital costs, and the profit forecasts for the upcoming year might be too hopeful.” He added, “A decline in PMI dynamics implies a potential drop in Q3 earnings, and a downturn in corporate pricing may result in margin pressures.”
Kolanovic anticipates that the major repercussions of elevated rates are yet to be felt. He comments, “We are witnessing an uptick in defaults on consumer credits and a rise in corporate insolvencies, and this pattern could persist if there’s no rate reduction.” He adds, “The surge in geopolitical tensions further complicates the situation, adding more challenges for markets and the economy. Our perspective will remain wary as long as high interest rates prevail, market evaluations are high, and geopolitical uncertainties linger.”
Considering the myriad of challenges, Kolanovic reveals that JPMorgan is opting for a more conservative approach in their portfolio, emphasising less on equities and credit and more on liquid assets and raw materials.
The institution has revised its earlier reduction in the duration exposure of their portfolio, leaning more towards bonds, raw materials, and especially gold. He stated, “It’s unclear if bonds have reached their lowest, but we’re increasing our government bond allocation by 1% due to geopolitical concerns, attractive evaluations, and less aggressive positioning. We’re also enhancing our focus on gold as a safeguard against geopolitical instability and anticipating a pullback in actual bond yields.”
In the analysis, JPMorgan estimates the average price of spot gold to be approximately $1,920 per ounce for Q4 2023. Their predictions for 2024 are segmented quarterly as $1,950 in Q1, $2,030 in Q2, $2,100 in Q3, and reaching $2,175 by Q4.
On Wednesday, gold’s performance remains robust. After peaking at $1,962.67 just before 10 am EDT, spot gold experienced a minor decline and was last seen trading at $1,953.39, marking a 1.57% increase for the day.
Amid global equity markets being perceived as overpriced and escalating geopolitical tensions, JPMorgan’s Lead Market Strategist, Marko Kolanovic, advocates for a strategic shift towards gold investments. The bank’s recent analyses further highlight the need for a more conservative approach, emphasising gold as a stable asset. With gold’s performance remaining robust and its prices projected to rise, it reinforces the metal’s position as a safe haven in uncertain times.